There are only a few stocks in the FTSE 250 that I would recommend as ‘strong buys.’ One of these is the online stockbroker and fund management platform AJ Bell (LSE: AJB).
The company only listed its shares in London at the beginning of September last year, but since then the stock has nearly doubled in value.
As a client of the business, it’s easy to see why. AJ Bell’s simple-and-easy-to-use platform might not have all the bells and whistles of a more expensive competitor, but it offers excellent service at a market-leading low price. For many investors, this is all they need.
With this being the case, I’m not surprised the group’s net profit has more than doubled since 2016, and that City analysts expect earnings per share to grow at around 22% per annum for the next two years.
Having dealt with a range of investment management platforms throughout my investing career, I can see why AJ Bell has been so successful in attracting assets to its platform. It’s easy to use, fuss-free, offers a wide range of assets to invest in, and is, above all, cheap. And as long as the company continues to maintain its slick, low-cost offering, I don’t think its growth is going to slow down.
That’s why I’m bullish on the outlook for this stock even though it’s much more expensive than the type of companies that would usually interest me.
At the time of writing, the stock is trading at a forward P/E of around 55, falling to 45 for 2020. But at the current rate of growth, earnings are set to double every three-to-four years, suggesting shares in AJ Bell could rise in value at a similar rate as well. That’s why I’m so bullish on this unique business.
Another FTSE 250 company that’s proven itself to be a slick and skilled operator is home services group HomeServe (LSE: HSV). The last time I covered this stock was at the end of October 2018 and, since then, it’s gone on to rise in value by 25% as City analysts have hiked their forecasts for growth.
Over the past five years, this company has grown rapidly through a series of acquisitions around the world. Net profit has increased tenfold since 2014, and based on current City forecasts, income is projected to rise 35% during the next two years.
However, despite this explosive earnings growth, the stock is trading at a relatively undemanding forward P/E of just 28.9. If management can double earnings again over the next five years (I see no reason why they can’t based on their historical track record), then I think there’s an excellent chance the stock could double again from current levels.
Only adding to the appeal is a 2% dividend yield. The payout is covered 1.7 times by earnings per share and has grown steadily in line with earnings over the past five years (it is up 100% since 2015). HomeServe’s combination of income, income growth, and earnings growth is why I believe this stock could help you make a million.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Homeserve. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.